Insights

E-Auctions: A Bad Call for Telecom Sourcing?

In the movies auctions always look glamorous and exciting. People with tons of money bid millions of dollars on priceless works of art.

In real life, auctions are far less appealing – or successful.

Not only are the items up for auction typically far more mundane, but the bidders are a combination of people who really know what they’re doing, the professionals, and those who have no idea what they’re doing, the rank amateurs.

The professionals—jewelers, antique dealers, auto dealers—stop bidding when the bids exceed the point where they can profit on the purchase. The rank amateurs drive the price up, often beyond what it’s worth or what you pay for a similar item at a store or online.

Auctions for telecom sourcing, e-auctions, tend to fall in the latter category. The perils are the same but the stakes are higher as anyone at a Fortune 1000 company responsible for telecom contract management can tell you.

Telecom Contracts Are Simply Too Complicated

It’s not that e-auctions can’t or don’t work; they can be very effective for simple, specific things. An example might be a 10 mm stainless steel screw used in manufacturing. You set the specs— 10 mm in length, stainless steel material, a pan head.

But telecom contracts are complex products. There are a handful of professional players—the telecom providers—and they know the ins and outs of the game. Heck, they write the rules of the game. And the rules say, keep pricing close to the vest, make apples-to-apples comparisons difficult, and rely on the fact that most customers have limited experience in wireline or wireless contract negotiations making them vulnerable to all sorts of one-off hidden charges built into the contract.

Because a telecom RFP is a complex document, there are lots of opportunities to negotiate the finer points of the contract. To negotiate the best deal you have to evaluate all financial concessions beyond just targeted price points. A carrier contract contains literally hundreds of price points, features charges, taxes and possible hidden fees. E-Sourcing does not address each and every rate or charge.

There’s also no place in an e-auction for you to let your current carrier know you’re prepared to walk away from the relationship if the pricing isn’t right. There’s no mechanism in an e-auction that lets the carrier’s sales team consult with the executive finance team to get you better pricing. And, without the blessing of the carrier’s finance team, the e-auction chips will fall where they may. And where those chips fall are usually not to the customer’s benefit.

E-auctions also do not necessarily attract the best bids. Incumbents understand that customers are aware of the migration costs involved in switching carriers. Non-incumbents recognize the advantages an incumbent has for those exact same reasons and are therefore reluctant to publicize their best prices, which would further commoditize rates and erode margin, in an environment where they are likely to lose 90 percent of the time.

Bid Like Your Job Depends On It… Because It Does

Just like in the movies, the prospect of an e-auction for telecom sourcing can seem exciting. But the reality of telecom contract management is much more sobering. A skilled telecom contract negotiator can help you navigate the finer points of the agreement and put pressure on carriers where they’ll feel it most. Because they have a broad range of experience and knowledge, you’re not going into a negotiation unarmed and uninformed about what’s possible.

E-auctions have their place in business. Telecom contract management is just not one of them.